Accounting ethics is the field in which the accountants are expected to follow the Generally Accepted Accounting Principles in the business environment. In recent years, we have observed an increased financial accounting activities accompanied by increased unethical business background (Balmer, 2012). In fact, no government or industry regulation found to contain the dishonest business people and accountants from reporting financial information unethically. Some of the recent found unethical accounting practices include: padding down the balance sheet information, manipulating or misrepresentation of expense or income figures with the financial statements, influencing the current financial results such as profits, engaging in fraud or cash thefts and lastly, unjustifiably altering the expenses to an inappropriate time span (Horngren et al., 2013).
This paper focuses on corporate ethical breaches by shedding light on the breaches of concepts and principles as set under GAAP and IFRS policies, by companies. Moreover, the essay describes how a Canadian based engineering company SNC Lavalin lost billions of dollars through breach of accounting principles, the impacts of the ethical breaches and necessary steps taken to the fraudsters. Moreover, the essay addresses how the Canadian company detected the ethical issues and how management failed to contain them. Moreover, the essay will analyze the accounts impacted and the accounting policies violated in the company. Lastly, the necessary recommendation measures that should be taken to prevent this ethical breach and how they should be implemented in the future will be comprised (Bowie, 2002).
Current Corporate Ethical Breaches and Regulatory Environment
Currently, ethical breach is a common phenomenon in companies where, the management and accountant professionals compromise the standard set by national and international accountant bodies.
Accountants are expected and required by the code of ethics of accountant professional to observe such accounting principles as objectivity, integrity, competence, professional care and professional behavior. Accountants are expected to be straightforward and honest in their business undertaking under the integrity principles. They are enforced to be objective by avoiding conflict of interests and biased information. Moreover, they are required to be confidential meaning that they are not allowed to disclose any professional information to outsiders. According to a recent Accounting Breach Investigation Report 2012 contacted by Australian federal police, Verizon risk team, US national high tech crime unit, US police central e-crime and United States Secret Service in 2011 and published on Wall Street Magazine, over 2000 breach incidents were reported and investigated.US Companies in 2011 lost over $174 billion through the accounting thefts, data loss, management staffs collaborating with customers among others. In 2004, only 855 incidents were reported and forensic investigation contacted revealed that the accounting ethical breaches have doubled over the last eight years. In my opinion, this clearly reveals that the currently business and regulatory environment are no longer conducive to support ethical behavior within the business sector (Balmer, 2012)
Description of SNC Lavalin Company
SNC Lavalin Company is a Canadian engineering company formed in 1991.Since its inception, the company enjoyed tremendous growth up to 2010, when it first experienced financial constraints before closing down some of its North African branches in Ghana, Nigeria and Mali.
Accounting Ethics Breaches Committed
In a detail report released by the SNC Lavalin Company, it was announced that the company lost in March 2012 over $56 million due to misallocated costs of payments to third party agents. In the report, the company’s executive director, Mr. Pierre Duhaime was accused of carrying out a series of complex unethical accounting activities in collaboration with the senior accountants. The report went further to mention Duhaime permitting the junior staffs to allocate over $33,5 million to a suspected payment despite the chief financial officer and other executive managers refusing to sign off the deal. This revealed that the company executive breached the accounting ethics and principle of integrity, objectivity and professional behavior found to require them to be honest to the company resources.
Impact of the Accounting Ethics Breaches to the Company and Society
The chairman of the SNC board, Mr. Gwyn Morgan revealed that the questionable contracts with the company had serious impact to the company’s end of year performance. It is important to mention that the immense financial performance of the company enjoyed over 100 years of history decline in 2011 and the company had to close some of the North Africa engineering branches. He cited that the company lost 20% of its stock by February 2012. Over a quarter of the current 28000 employees have to be retrenched by the company to meet its operational costs (AICPA, 2012).
Determining How the Organization Detected Fraud and How Management Failed
In March 2012, the company’s financial position was observed to decline with some branches across the country and even other parts of the world experienced losses. As a result, the SNCs board of directors outsourced independent auditors who managed to audit the financial statements for a month before releasing the unqualified report. The report states that the Canadian largest engineering company has lost over $5,6 million through misallocated payments to ghost third party agents. In the report, the auditors stated clearly that Mr. Duhaime was the source of the problem. He instructed the junior accountants to pay some third parties over $5,6 million regardless of the chief financial officer and other senior management staffs objection. Moreover, the management of the company was criticized and blamed for not taking necessary measures to stop the fraudulent activity. They failed to ensure a clean accounting and business ethics environment in the company finance department. Inevitably the chairman of the board, Gwyn Morgan forced the chief executive to resign (Horngren et al., 2013).
Analyze the Accounts Impacted and/or Accounting Guidelines
The company prepared financial statements that reflected the company as having made a net income of $67,1 million in the 2012’s first quarter compared with 76,1 reported in 2011 under the same period. The net income of the company before infrastructure concession investments was $42 million in 2012 compared to $51,7 million in March 2011 (Horngren et al., 2013). The income statement information showed that the company was not performing well financially and thus the management was to blame. The management failed in observing the GAAP and IFRS principles and guideline that allow for honesty and no misappropriation of company fund. As a result, the fraudulent activities undertaken of $5,5 million impacted the accounts. The resulting impact of the accounts was revenue backlog of $1,1 billion by 31 March 2012.
Recommended Measures to Prevent Ethical Breaches and how Implementations Should Be Taken
As a Chief Financial Officer (CFO), I recommend the following in accordance to the Accounting data protection Act of 2011, which provide various recommendations fundamental in addressing accounting breaches. First, the companies must regularly conduct immediate audits for the financial statement, and also make enough monitoring of all transactions so as to detect frauds in advance. Second, I suggest organization to fully implement the Personal Data Security Code of Practice which advocates for all the personal details including bank accounts of the employees and owners to be availed. Third, it is essential to employ and educate the accountants who need to observe the GAAP and IFRS principles on their line of duties. It is also recommendable for the management staffs to disclose any breach of ethics to the relevant authorities in advance. The SNC Lavalin Company failed to counter down the fraudulent activity due to fear of the junior accountants to disclose the matter to the board (Sinnet, 2002).
Implementation of the Recommended Measures
The management of this company can implement auditing and assurance process through employing internal auditors or even outsource the services from independent and impartial external auditors such as price water Coopers Company. Therefore, I recommend the company to implement the system of employing high qualified accountants and to ensure that they are fully trained of what is expected from them. They should be guided by objective criteria, competence professionalism and integrity.
Given the recent ethical breaches reported in various companies, the management staffs are required to exercise due care and diligence, especially on accounting practices. As disclosed in the company discussed above, online frauds are prevalent and the current business and regulatory framework are no longer fully implemented to meet ethical behavior. The organization must observe the recommended guidelines above, so as to cut down the ethical breaches.